Bob Diamond resigned on Tuesday as the head of Barclays Bank in an effort to begin drawing a line under the Libor-rigging scandal. That in itself is astonishing; the boss of a high-street bank slapped with a record fine for manipulating markets quitting not in apology or contrition but to stop the affair "damaging the franchise" of his company. In any case, the manoeuvre failed: his departure simply turned what is already one of the most remarkable corporate falls from grace in contemporary history into something still more spectacular.

Too bad for the executives at Barclays; but good news for the rest of the country. Because what is taking shape this week is an argument that Britain should have had at least after the rescue of the banks in autumn 2008, if not long before that: namely, a discussion of what kind and size and style of banking industry is right for Britain. Many heavyweight bankers, not to mention senior figures in politics and officialdom, doubtless want to duck this public conversation – and its fallout. Again: too bad. If Britain does not hold a democratic debate – however irksome or embarrassing – on how to make an over-powerful banking industry less dangerous and better suited to our needs, it runs a much higher risk of repeating the financial crisis.

Given the events of the past few days, it is remarkable to remember that the scandal uncovered last week, of bankers tampering with money-market rates to bolster their own profits and bonuses, has a lot further to run. For a start, London and New York regulators have made it clear that other institutions were involved – and they are investigating them. For another thing, there are now serious questions to be answered by central bankers and regulators on what they knew about the rigging – and whether they even encouraged it. The clear implication of the dossier published by Barclays is that senior figures of the Bank of England actually urged senior bankers on in their market distortions. Of course, Bank staff should be allowed to respond fully before we jump to any conclusions – but the explanations that Threadneedle Street (and indeed Whitehall) will have to make mount day by day. When he goes in front of the Treasury select committee this afternoon, Mr Diamond will doubtless be called upon to substantiate and elaborate on his accusations; indeed, he appears to be spoiling for the opportunity. Such details will be worth scrutinising; some are bound to provide valuable insights into the way banking is conducted in this country. But they need to be fitted into a template for discussion – not just pored over for an endless series of scapegoats. What is on trial here is not just a parade of bankers, no matter how senior, but an entire culture and the political and regulatory context it operated within.

When Britons were called on to hand over £20,000 each to rescue the finance industry, they did so on the pretext that a healthy, functioning banking system is in the nation's vital interest. Yet even after the crash, British banking has not been run in the public interest; it has carried on behaving in the same reckless manner as ever – only now with the explicit support and implicit subsidies of the state. And it has been allowed to do so by politicians of all major parties, who – with initiatives such as the Vickers commission – have sought simply to make it a little bit safer and a fraction less of a risk to the taxpayer. Successive prime ministers, including Gordon Brown and David Cameron, have granted the finance industry all the space it needs to make risky gambles, engage in multimillion-pound tax avoidance, and work against the wider public interest.

How that has happened and how it can be put right must be the subject of a Leveson-style public inquiry. Just like Leveson, this need not be long and drawn out; but it must be granted a wide remit, including an examination of the apparently toxic intimacy of politicians, regulators and financiers. Failure to hold such an inquiry – and to follow through on its implications – will probably cost Britain much more in the long run.